Canada: Is Just Cause A Lost Cause?: Ontario Court Upholds Settlement Despite After-Acquired Information About Misconduct

The basic legal principles underscoring the formation of a
contract are no mystery to most employers – an offer is made,
the employee accepts the offer, and both parties receive valuable
consideration for the bargain. The recent decision of the Ontario
Superior Court of Justice in Dennis v Ontario Lottery and
Gaming Corporation underscores the primacy of these basic
legal principles after the Court upheld a settlement agreement
despite the fact that incriminating information tantamount to just
cause was subsequently obtained by the employer.

Background Facts

Brenda Dennis was terminated without cause by her employer,
Ontario Lottery and Gaming Corporation ("OLG"), after
having worked for OLG as a Security Manager for over thirteen
years. Dennis was offered and accepted a severance package, which
was incorporated into a settlement agreement. After the agreement
was executed but before Dennis received the proceeds of the
settlement, OLG discovered a shortfall in funds related to an
initiative operated by Dennis on behalf of OLG's employee
social committee (the "Wonderland Initiative").

As part of the Wonderland Initiative, Dennis sold discounted
Wonderland tickets to OLG employees. At the end of the selling
period, Dennis was required to reconcile the funds obtained with
the tickets sold and return all unsold tickets to Wonderland by a
specific date. On her final workday with OLG, Dennis was asked by
the Director of Human Resources about the Wonderland Initiative and
where the money, tickets and inventory list were stored. Dennis
informed the Director that, with the exception of the funds
required to purchase four tickets she intended to buy for herself
that day, the money, tickets and inventory list were in the
security safe.

Following Dennis' departure, OLG determined that there was
in fact a shortfall of $1,268 in funds related to the Wonderland
Initiative. During the resulting criminal investigation, Dennis
admitted to taking the funds (with the intention of paying them
back) and was charged with theft. Dennis, herself the victim of a
fraud scam, "borrowed" the money to send along with
approximately $12,000 of her own money to a Nigerian she met on an
online dating website.

Dennis repaid the funds prior to her first court appearance.
Having made restitution and consistent with the diversion program
for first-time offenders, the Crown withdrew the charge against
her. Thereafter, OLG conducted an internal investigation that
relied heavily on Dennis' admissions during the criminal
investigation and concluded that Dennis stole the missing funds.
OLG withheld the settlement funds from Dennis during the criminal
and internal investigations and used the findings of those
investigations to support its position that the settlement
agreement was rescinded on the basis of after-acquired information
that now supported a for cause termination of Dennis'
employment.

Positions of the Parties

OLG submitted that the settlement agreement was rescinded since:
(1) Dennis' dishonestly when interviewed amounted to a material
and fraudulent non-disclosure of information relevant to OLG's
decision to terminate her without cause, and (2) Dennis knowingly
concealed the fact that she stole funds, conduct that warrants
termination for cause in and of itself.

Dennis argued basic contract principles and submitted that the
case was simply a matter of enforcing a valid settlement agreement.
She also pointed to OLG's reliance on inaccurate
information.

Decision

Coming back to the basic principles of contract law, the Court
found that OLG made the initial settlement offer of its own accord;
Dennis accepted the offer; and both parties received valuable
consideration for the settlement. Dennis received consideration in
the form of severance pay equivalent to 53 weeks' salary; and
OLG received consideration in the form of a final release signed by
Dennis, foregoing any claim for wrongful dismissal or related
causes.

Central to this conclusion, the Court made a critical finding
that negated OLG's rescission arguments: Dennis did not steal
the missing funds. To this end, the Court emphasized the following
facts:

Running the Wonderland Initiative was "voluntarily
assumed" by Dennis and not an essential condition of her
employment contract with OLG.

The missing funds were the property of Wonderland, not
OLG.

The Wonderland Initiative was informal with no formal
accounting requirements.

Dennis admitted only to borrowing the money with the intent of
repaying it.

The internal investigation was "inadequate and
inaccurate" as it relied heavily on and misinterpreted
Dennis' "admission" in the criminal investigation
(i.e. Dennis admitted to borrowing not to stealing).

While the Court acknowledged that Dennis engaged in a dishonest
nondisclosure, it was not a material non-disclosure that would
justify rescinding the settlement agreement. Thus, the Court
concluded that it was "totally disproportionate" for OLG
to view the misconduct as sufficiently egregious to support
termination for cause.

Employer Take-Aways

This case reinforces the old adage that "a deal's a
deal". If an employer has any indication that it may have just
cause to dismiss an employee, the time to thoroughly and diligently
investigate those signals is before the termination is effected and
the settlement documents are signed. Although in certain
circumstances after-acquired information about an employee's
misconduct will constitute grounds for rescission of an otherwise
binding settlement contract, given the scrutiny after-acquired
information receives by courts, employers should seek legal advice
before withholding settlement funds from a dismissed employee on
that basis.

The foregoing provides only an overview and does not
constitute legal advice. Readers are cautioned against making any
decisions based on this material alone. Rather, specific legal
advice should be obtained.

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